USTR Stops Short of Taking Vietnam Tariffs Threat Off the Table

The U.S. Treasury Department reached agreement with the State Bank of Vietnam to address U.S. allegations that Hanoi was devaluing the dong against the dollar to the detriment of U.S. interests, said the two sides in a joint statement Monday. U.S. Trade Representative Katherine Tai immediately hailed Vietnam “for its commitment to addressing our concerns.”

But Tai and her agency stopped well short of taking their threatened Trade Act Section 301 tariffs on Vietnamese goods off the table. “Countries should not be able to manipulate their exchange rates to gain an unfair competitive advantage in international trade," said Tai. "Vietnam can set an important example for the Indo-Pacific region by allowing its exchange rates to move in line with underlying economic fundamentals.”

The SBV “underscores that the focus of its monetary policy framework is to promote macroeconomic stability and to control inflation,” said the joint Treasury-Hanoi statement. Vietnam confirms it’s “bound” under International Monetary Fund rules “to avoid manipulating its exchange rate in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage and will refrain from any competitive devaluation of the Vietnamese dong,” it said. The SBV “will continue to improve exchange rate flexibility over time, allowing the Vietnamese dong to move in line with the stage of development of the financial and foreign exchange markets and with economic fundamentals, while maintaining macroeconomic and financial market stability,” it said.

Hanoi agreed to continue giving the U.S. the “necessary information” to monitor Vietnam’s activities in the foreign exchange market, with the results to be published in Treasury’s semiannual reports to Congress, said the joint statement. Treasury’s last report April 16 said Vietnam was one of several U.S. trading partners that “intervened in the foreign exchange market in a sustained, asymmetric manner with the effect of weakening their currencies” in order to “impede U.S. growth or harm U.S. workers and firms.”

Vietnam’s “bilateral goods trade surplus” with the U.S. widened in 2020 to $70 billion, “the largest bilateral imbalance on record between the two countries,” said Treasury’s April report. Vietnam’s exports to the U.S. grew about 19.5% in 2020, while imports from the U.S. to Vietnam decreased 8%, it said. “The expanding surplus also reflects Vietnam’s deepening links with global supply chains, with Vietnam being one of the primary beneficiaries of the ongoing shifts in Asian supply chains.”

Treasury will “inform other U.S. government agencies that it has reached agreement with the SBV to address Treasury’s concerns about Vietnam’s currency practices,” said Monday's joint statement. Then-USTR Robert Lighthizer decided in January not to impose Section 301 tariffs on Vietnam imports in the remaining days of the Trump administration for Hanoi’s allegedly improper devaluation of the dong against the dollar (see 2101150052). His agency did find Vietnam’s practices “actionable” under Section 301 and said then it would “continue to evaluate all available options” on possible trade remedies under the new administration.

Tai, Lighthizer’s successor, has kept the threat of Vietnamese tariffs in play since her mid-March confirmation on a unanimous Senate vote (see 2103170042). “USTR, in coordination with Treasury, will monitor Vietnam’s implementation of its commitments and work with Vietnam to ensure that it addresses the acts, policies and practices related to the valuation of its currency that were found actionable in the Section 301 investigation,” said Tai’s agency Monday.

Sparing U.S. importers from duties on Vietnamese imports would relieve them of a huge financial burden after many shifted sourcing to Vietnam from China to escape exposure to the earlier Section 301 tariffs on Beijing, several testified at USTR’s Dec. 29 virtual hearing on Hanoi’s alleged currency misbehavior (see 2012290034). Vietnam occupies a large and growing role in the U.S. supply chain for consumer tech goods. Vietnam shipped nearly 3 million laptops and tablets to the U.S. in January-May this year when demand for remote work and learning connectivity tools maintained historic highs. Unit shipments of notebook PCs and laptops from Vietnam in 2021's first five months increased 80.4% from the same 2020 period, Census reported.